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UNILEVER NIGERIA PLC Q1'22 Earnings Release - Impressive margins follow tea spin-off

In its Q1’22 earnings release, Unilever Nigeria reported a 6% y/y upswing in Revenue to ₦20.6 billion, driven by growth in both the Food (+26% y/y) and Home & Personal Care (+23% y/y) businesses. We recall our expectation that the disposal of the tea business would lead to a decline in Revenues, at least for a few quarters, with a subsequent normalization in volumes. Accordingly, the performance of the food segment (which has been restated to reflect this sale), came in line with our projections.

Profitability-wise, margins have remained very impressive, driven by a mix of increased revenue and minimized expenses. Gross profit expanded 12ppts y/y to 35% in the period (Q4’21: 33%, Vetiva estimate: 31%), and we believe the company may have increased prices to smoothen margins in the quarter. Additionally, Unilever’s operating and net profit margins have improved by 8ppts and 12ppts to 11% and 12% respectively. We believe that the boost in profitability has been supported by the disposal of its tea business, which had been a drag to profit.

For the rest of the year, our projections remain upbeat, especially given the positive performance in margins and bottom-line. We expect the continued strengthening in economic activities to buoy Revenue across both businesses. However, we anticipate growth to be tilted towards the Home and personal care segment, hinged on increased volume outlook from the value market. That said, we do expect the Food segment to also pull weight, amid price increments and expanding economic activities.